Mike Akkawi, Sophia Tolias and Guy Berman Comment on Private Equity Trends for the Globe and Mail Report on Business

Why private equity likes mid-sized companies such as Town Shoes

Partners Mike Akkawi and Guy Berman and associate Sophia Tolias participated in a Globe and Mail article featuring their expertise on the topic of mid-sized Canadian companies’ growth opportunities in private equity. The three, co-authors on annual private equity reviews for Torys in recent years, provided the example of Town Shoes as a mid-sized company that private equity firms view as distinctly meeting their investment criteria.

Below is an excerpt of the article.

This type of private equity deal is a win-win situation for both the buyer and the seller, Mr. Berman says.

“It’s a great example of how private equity works,” he explains. The buyers acquired a well-run business that had room to grow, while “from the owner’s side, they made a good return on the sale and retained some of their equity.”

The story didn’t end there. By this year, the chain had 182 stores under both brands, with annual sales last year of $291-million. Earlier this year, U.S. giant DSW Inc. bought a 44-per-cent stake in Town Shoes for $62-million (U.S.), with options to buy the rest of the company after four years.

Private equity firms are looking more eagerly at Canadian mid-sized firms of all types for investment opportunities, says Sophia Tolias, an associate at Torys who has worked on similar private equity transactions.

“It’s partly because of changing Canadian demographics. The population is aging. Baby boomers are retiring in the next few years, and they’re looking to transition their businesses. The private equity firms see opportunities, which, in turn, creates more opportunities,” she says.

Together with Torys partner Michael Akkawi, Ms. Tolias and Mr. Berman published a review of Canada’s private equity market in 2012. (They are updating their data and publishing a new review soon.) They found that mid-market transactions were rich territory for private equity firms in 2012.

“The vast majority of private equity transactions in Canada in 2012 remained in the low- to mid-market, with deals of less than $500-million accounting for 80 per cent of the disclosed deal values, similar to the experience in U.S. private equity markets. Canadian transactions were predominantly less than $100-million,” their review said.